Measures for Pre-tax Deductions from Income Tax for Enterprises

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Measures for Pre-tax Deductions from Income Tax for Enterprises



    Measures for Pre-tax Deductions from Income Tax for Enterprises


    Guo Shui Fa [2000] No.84

    To the bureaus of state taxation and local tax bureaus of each province

    autonomous region municipality and the cities under separate state

    planning:(The circular is omitted

     Measures for Pre-tax Deductions from Income Tax for Enterprises

     Chapter I General Provisions

     Article 1 These Measures are hereby formulated in accordance with

    the Interim Regulations of the People's Republic of China on Income Tax

    for Enterprises the "Regulations" and implementing rules thereof the "Rules")。

     Article 2 According to Article 4 of the Regulations the balance of

    total annual income to the taxpayer in each tax year less the allowed

    deductions shall be the taxable income. The allowed deductions mean all

    necessary and normal costs expenses taxes and losses of the taxpayer in each tax year arising in connection with the acquisition of taxable


     Article 3 The deductions declared by the taxpayer shall be true and

    legitimate. Truthfulness means the evidence is available that related

    expenditure has arisen. Legitimacy means conformity with the state tax

    regulations. In case of discrepancy between other regulations and the tax




    regulations the latter shall prevail.

     Article 4 Unless otherwise stipulated by the tax laws and

    regulations the confirmation of pre-tax deductions shall comply with

    the following principles

     1 Accrual basis principle The taxpayer shall confirm the deductions at the time when the expense accrues rather than at the time of


     2 Matching principle The expenses of the taxpayer shall be declared for deduction in the period when the expense shall be matched

    or distributed. The deductible expenses that the taxpayer shall declare in a

    certain tax year shall not be deducted earlier or later.

     3 Principle of relevance The expenses that the taxpayer may deduct shall be relevant to the taxable income in nature and at root.

     4 Principle of certainty No matter when the deductible expenses of the taxpayer are paid the amount shall be certain.

     5 Principle of reasonableness The computing and distribution methods for the deductible expenses of the taxpayer shall comply with

    the general operating rules and accounting practices.

     Article 5 The expenditure of the taxpayer must be strictly divided

    into operating expenditure and capital expenditure. Capital expenditure

    shall not be directly deducted in current period and instead it shall be depreciated amortized in several periods or recognized in the costs of



    存档所用,请勿外传,下载后请在24小时内删除。版权归原作者所有。 related investments in accordance with the provisions of tax laws and


     Article 6 Except for the provisions of Article 7 of the Regulations the following expenditures shall not be deducted from the taxable


     1 Illegal expenditure such as bribe;(2 Fine penalty and overdue fine paid for violation of laws and administrative regulations3 Provision for impairment of inventories impairment of

    short-term investment and impairment of long-term investment risk reserve funds including investment risk reserve fund), and any other reserves other than those set aside in accordance with state tax laws and

    regulations;(4 the part in excess of the statutory deduction scope and

    standard proportion or amount specified by tax laws and regulations.

     Article 7 The confirmation of the costs of such assets as inventory fixed assets intangible assets and investments of the taxpayer shall

    comply with the historical cost principle. In case of restructuring of the

    taxpayer including merger split-up and capital structure adjustment if the potential appreciation or losses of related assets have been

    confirmed and realized in tax payment the cost of related assets may be

    determined according to the appraised value.

     Chapter II Cost and Expense

     Article 8 Cost means the cost arising from the taxpayer's sales of



    存档所用,请勿外传,下载后请在24小时内删除。版权归原作者所有。 commodities including products materials leftovers waste products and old and waste materials), provision of labor services and transfer of fixed assets and intangible assets including technology


     Article 9 The taxpayer shall reasonably divide the cost arising from

    operating activities into direct cost and indirect cost. Direct cost means

    the direct materials and direct labor in the operating cost that may be

    directly stated for related cost computing objective or labor. Indirect cost

    means the joint cost of services provided by several departments to the

    same cost objective or the joint cost of the same input that may

    manufacture and provide two or more products or labor services.

     Direct cost may be directly included in the operating cost of related

    cost objective or labor service according to relevant accounting vouchers

    and records. Indirect cost must be reasonably allocated to related cost

    objectives according to the cause and effect between cost objectives and

    the output of cost objectives.

     Article 10 The inventories of the taxpayer shall be priced at the

    actual cost when it acquires them. The actual cost of inventories

    purchased by the taxpayer includes purchase price purchase expense and tax. T ax included in the inventory cost means consumption tax customs duty and resource tax paid for purchase production or entrusted processing of inventories and the input value-added tax VAT that can



    存档所用,请勿外传,下载后请在24小时内删除。版权归原作者所有。 not be deducted from the output VAT.

     The cost of inventory production by the taxpayer includes such

    indirect expenses as manufacturing expense.

     Article 11 The taxpayer may adopt the pricing methods such as individual pricing method first in first out method weighted average method moving average method planning cost method gross profit margin method or retail price method for outgoing inventories. In case

    of discrepancy between the inventory process used by the taxpayer and

    the last in first out method the taxpayer may also confirm the cost of

    outgoing inventories by the last in first out method. If the taxpayer

    confirms the inventory cost or selling cost by planning cost method or the

    retail price method it must carry forward the cost difference or the

    margin between the selling and purchasing prices on merchandise at the

    time of year-end declaration of tax payment.

     Article 12 The cost computing methods indirect cost distribution methods inventory pricing methods of the taxpayer shall not be changed

    once they are confirmed. If the change is necessary the taxpayer shall apply to the competent tax authority for approval before the beginning of

    the next tax year. Or the tax authority shall have the right to make

    adjustment if the taxable income is affected.

     Article 13 Expense means the selling expense administrative expense and financial expense that the taxpayer occurs in each tax year



    存档所用,请勿外传,下载后请在24小时内删除。版权归原作者所有。 and may be deductible except for the expenses that have been included

    in the cost.

     Article 14 Selling expense means the expenditure arising to the

    taxpayer for sales of commodities including advertising expense transportation expense loading and unloading expense packing expense exhibition expense insurance premium sales commission adjustment of commodity purchase price cost for the import

    commission able to be directly confirmed), handling charge for agency

    sales operating lease fee traveling expense of marketing department salaries and welfare expense.

     Such commodity purchase expenses as the packing expense and

    transportation expense arising to the taxpayer engaged in commodity

    circulation for the purchased inventories before being warehoused insurance premium and loading and unloading expenses arising in course

    of transportation and storage reasonable losses in transportation and selection and clear-up expenses before warehousing may be directly

    included in the sales expense. If the taxpayer has included the said

    commodity purchase expenses in the inventory cost according to the need

    of accounting it shall not declare the deductions repeatedly in the name

    of sales expense.

     The sales expense of the taxpayer engaged in real estate

    development also includes the refitting and repair expense maintenance



    存档所用,请勿外传,下载后请在24小时内删除。版权归原作者所有。 expense and heating expense occurring before sales of the development


     If the sales expense of the taxpayer engaged in post and

    telecommunications has been included in the operating cost it shall not be included in the sales expense for deduction again.

     Article 15 Administrative expense means the expense arising to the

    administrative department of the taxpayer for provision of various

    supporting services for management and organizing of operating

    activities. Administrative expense shall include the head office

    corporate outlay borne by the taxpayer research and development

    expense technical development fee), social security contribution labor protection expense business entertainment fee trade union fee staff education outlay expenses of the shareholders' meeting or board of

    directors amortization of start-up expense amortization of intangible

    assets including land use fee and land loss compensation), mineral resource compensation bad debt loss stamp duty fire fighting expense pollutant discharge fee afforestation fee foreign affairs fee legal financial material processing and accounting affairs costs

    consulting fee legal cost fee of engagement of intermediary

    agencies trademark registration fee), and reasonable administrative

    fees relevant to its for-profit activities paid to the head office the head office of the same legal entity in the nature of headquarters)。 Unless



    存档所用,请勿外传,下载后请在24小时内删除。版权归原作者所有。 with approval of the State Administration of Taxation or its authorized

    tax authorities the taxpayer shall not recognize the administrative

    expense paid to its affiliated enterprises.

     The head office outlay also called corporate outlay includes the salary welfare fee and traveling fee of the administrative officers of the

    head office and the office fee depreciation expense repair expense material consumption and amortization of low-value consumables.

     Article 16 Financial expense means the expense arising from

    raising of operating funds including net interest expense net exchange loss handling charge of financial institutions and other non-capital expenditure.

     Chapter III Payroll Expenditure

     Article 17 Payroll expenditure means all the labor compensations

    in or not in cash paid by the taxpayer to the employees hold positions in

    or have employment relationship with the taxpayer in each tax year including base salary reward allowance subsidy year-end salary increase overtime salary and other expenditures concerned.

     Regional subsidy commodity price subsidy and lunch subsidy shall

    be treated as payroll expenditure.

     Article 18 The following expenditures of the taxpayer shall not be

    treated as payroll expenditure

     1 Dividends paid to employees for their investment in the



    存档所用,请勿外传,下载后请在24小时内删除。版权归原作者所有。 taxpayer;(2 Social security contribution paid by the taxpayer for

    employees according to provisions of central or provincial governments3 Various welfare expenditures including employee living

    allowance and family-visit traveling expense paid out of the staff

    welfare fund;(4 Various labor protection expenditures;(5 Traveling expense and setting-in allowance for work transfer of employees6 Various expenditures for retirement and resignation of employees7 The only-child allowance;(8 Public housing reserve fund

    assumed by the taxpayer;(9 Other items that according to the State Administration of Taxation do not belong to the payroll expenditure.

     Article 19 Employees holding positions in or with employment

    relationship with the enterprise include regular employees contract workers and casual laborers with the exception of the following cases

     1 The employees of the clinic staff bathroom hairdresser's room kindergarten nursery school that shall be charged to the staff

    welfare expense;(2 The retirees laid-off workers and post-waiting

    workers who have received pension and unemployment benefits3 Administrative service persons of the houses sold or leased with

    rent income included in the housing turnover fund.

     Article 20 Unless otherwise stated payroll expenditure adopts tax

    salary deduction methods with taxable salary deduction standards

    referring to the provisions of the Ministry of Finance and the State




    Administration of Taxation.

     Article 21 The salaries paid to employees by the taxpayer which

    adopts the performance-linked salary measures and the salaries paid by

    the catering service industries from retained profit may be deducted

    according to the actual payment.

     Chapter IV Asset Depreciation or Amortization

     Article 22 The depreciation expense of the fixed assets and the

    amortization expense of intangible assets and deferred assets used by the

    taxpayer in operating activities may be deducted.

     Article 23 The pricing of fixed assets of the taxpayer shall conform

    to the provisions of Article 30 of the Rules. After confirmation of the

    value of a fixed asset it shall not be adjusted unless in the following

    special cases:(1 Asset liquidation and capital verification required by

    the state;(2 Dismantlement of a part of the fixed asset;(3 If the

    fixed asset has been damaged perpetually with approval of competent authority the value of the fixed asset may be adjusted to the recoverable

    value and the loss shall be recognized;(4 Adjustment of the original valuation based on the actual value or finding mistakes with the original


     Article 24 The depreciation scope of fixed assets of the taxpayer

    shall conform to the provisions of Article 31 of the Rules. Unless

    otherwise stipulated no depreciation or amortization shall be made for


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